The health insurance world is changing. In years past many people looked to their P&C broker or a relative for assistance because they held a life and health insurance license. Due to the new rules and regulations business owners need more guidance and should demand much more from their insurance broker. We have found in our careers that, with very few exceptions, employers care as much or more than the employees about the benefits package that is being offered. Our job is to provide employers with the appropriate solutions to offer the employees and comply with sticky government requirements.
Cost – While cost is not the only piece to a benefits package it is certainly the most important. Costs will drive carrier choice, plan design, and eligibility decisions. Having every carrier that operates in the state of Indiana at our disposal has served us well because we are able to implement the best possible plan for the least amount of capital investment.
Keys to effective cost management
- Plan Design Construction
- Consistent Claims Review
- Wellness Initiatives (passive or pro-active)
- Funding Strategies
- Fully Insured
- Partially Self-Funded
- Employee Education
- Renewal Management
- Effective Compliance Measures
Plan Design Construction – Building a plan that fits each and every employee is nearly impossible. Almost every individual or family unit has a different need. A well balanced medical insurance program with effect well communicated ancillary and voluntary plans will go a long way to provide the appropriate solutions for each participant.
- Dual Choice Health Insurance Offerings
- Health Reimbursement Arrangements
- Health Savings Accounts
- Employer paid or voluntary disability offerings.
- Dental Insurance
- Vision Insurance
- Voluntary Supplemental Benefits
Having access to each and every carrier helps us craft an appropriate blend of plans for your employees. In many situations, we find carrier representatives “selling” plans to employees without regard to what they currently have provided to them by their employer.
For example, we came across a small group that was sold a supplemental package that included benefits that nullified the tax benefits of their HSA plans or employees over-insuring themselves on disability plans when they already have an employer-paid program in place.
Consistent Claims Review – Large groups can get quarterly claims statements giving them an opportunity to review many things from wellness visits to Rx utilization. Below is an example of an Rx utilization grid from one of my clients.
Top 10 Drugs by Cost – this report lists the 10 most costly drugs prescribed to your employee population.
Drug $ Paid $ PMPM $ PMPM Rank
ACTOS 1,406 6.51 0.28 48
JANUMET XR 1,044 4.83 0.03 344
PIOGLITAZONE HCL 777 3.60 0.17 86
LEXAPRO 741 3.43 0.07 168
RESTASIS 680 3.15 0.17 84
CELEBREX 679 3.14 0.46 22
SINGULAIR 521 2.41 0.60 14
FLOVENT HFA 502 2.32 0.19 73
DIFLUNISAL 443 2.05 0.01 714
BUPROPION HCL XL 376 1.74 0.31 42
What this information gives us is a couple very important pieces of information.
- Employee education on Rx utilization is a must.
- The employees are not discussing generic options with their physician.
- Mail order may be under-utilized.
- We know what to target with wellness initiatives.
Wellness Initiatives – Wellness initiatives can be an involved or passive process. It generally takes 3-5 years to see any type of improvement from a wellness program so while it is an important piece to the process it is generally a long term solution that is measured out over several years. My usual recommendation to start the process is to fully implement the insurance carrier’s wellness tools in order to start the conversation on wellness and then when the time is right to implement a third-party wellness program to take it to the next level.
Funding Strategies – The Affordable Care Act has forced insurance carriers to become more creative in the smaller group marketplace (under 250). For many years employers under 250 employees (certainly not fewer than 100 employees) had not had access to the self-funded or partial self-funded strategies that were available to larger groups.
The main difference between self-funded and fully insured is who owns the re-insurance coverage and the claims pool. We have new plans on the market that allow smaller groups to own the reinsurance and the claims pool. In good claims years, the client receives a refund on the unused premium amounts and in bad claims years, the client is protected from large expenses by the re-insurance (or stop-loss). This would be an ideal fit for a company that has a younger and/or healthier workforce.
Employee Education – The employee benefits package is a significant hit to any company’s bottom line. Proper employee education serves two purposes.
- Controlling Costs
- Employee Morale
Employee education can be the difference between a good claims year and a bad one. Making sure employees know the difference between the Emergency Room, Urgent Care Facilities and Med Check Clinics is one way to control costs. A second is to make sure employees know the difference between brand name Rx, generic Rx and how to utilize mail order for maintenance medications.
Additionally, employees cannot appreciate something they do not understand or do not know how to utilize properly. In many situations we see an employee benefits package that had been implemented to benefit the employees turn out to be a detriment because the employees did not know how to utilize the plans properly.
Renewal Management – Negotiating renewal rates with insurance carriers is another important piece to the puzzle. Holding the insurance carriers accountable and ensuring they are accurately measuring the risk within the group is a central role of any good consultant.
There are several important things to consider.
- Are they removing any large claims that have been resolved?
- Is the insurance carrier properly weighting experience credibility vs. manual credibility?
- Are the admin fees appropriate?
Effective Compliance Measures – Compliance measures will be discussed in great detail in a later section but it needs to be discussed in the cost management realm too. The Affordable Care Act has created a compliance nightmare for any group that is providing employee benefits to their employees. Much of the media focus on the ACA has centered on what must be offered under the ACA but very little about how you are now required to offer plans.
For the examples below we will use a 100 employee group that has been out of compliance for 2 full years and has been offering coverage for the past 10 years.
- An offer of coverage must be provided at least annually. If found that an offer of coverage was not provided to the employee then the employer would be found in violation of the subsection (a) penalty under the ACA. The fine would be $280,000.
- If a group offers benefits on a pre-tax basis they must provide an election form each year showing employee’s elections. If those documents cannot be provided the employer would be found in violation of the IRS code section 125. The penalty would be the repayment of any and all benefits of pre-taxing benefits back to plan inceptions (roughly $150,000 in this case).
- A Summary of Benefits and Coverage must be provided to each eligible employee. The summaries can be provided by the insurance carrier but must be distributed by the employer. Each failure would incur a $1,000 penalty. The fine would be $200,000.
- ERISA – This law, first enacted in 1974, is a compliance proposal all in itself. However, it important to note some key requirements that may need to be addressed.
a) Plan Document must exist for each plan.
b) Plan terms must be followed and strict fiduciary standards adhered to.
c) Summary plan description (SPD) must be furnished automatically to plan
d) Summary of material modifications (SMM) must be furnished automatically to participants when a plan is amended.
e) Form 5500 must be filed annually for each plan (subject to exemptions, especially for small plans)
f) Summary annual report must be furnished to plan participants for any plan that files a form 5500
g) Claim procedures must be established and carefully followed when processing benefit claims.
h) Plan assets, including participant contributions may only be used to pay plan benefits and reasonable admin expenses.
i) Group Health plans must conform to applicable mandates such as HIPAA and COBRA.
Under ERISA any person who exercises discretionary control regarding the management of a plan, its assets, renders advice for a fee, or has discretionary responsibility in the administration of the plan is considered a fiduciary and as a plan fiduciary they are personally liable for an damage done to a plan up to and including special fiduciary penalties assessed by the DOL or even criminal penalties.
- COBRA – This is another law that could easily be a full conversation in and of itself. COBRA regulations have been put in place to help individuals and/or dependents continue health coverage if they have lost coverage. The biggest challenges that face employers is getting the documentation to the employees in a timely manner. While the ACA does not impact the law the compliance to the law will be under greater scrutiny due to the increases in DOL and EBSA audits.
When a business owner is noncompliant with COBRA regulations they may be assessed by the IRS (up to $200) for each day on which a plan fails to comply with COBRA. Statutory penalties of $110 per day may be recovered by qualified beneficiaries. Additionally, the qualified beneficiary may sue the employer to implement COBRA coverage rights, for damages caused by the deterioration of a beneficiaries’ medical condition as a result of them not getting adequate rights notification, and attorney’s fees.
- HIPAA Portability, Privacy and Security – At the heart of this law is the privacy provision. Many overlooked pieces of this law include limitations of pre-existing condition exclusions, special enrollment provisions, and nondiscrimination requirements. Compliance on each and every provision is important as fines or penalties can be assessed by the IRS, DOL, and HHS.
HIPAA HITECH – New rules regarding electronic information.
- March 26, 2013: The rules became effective.
- September 23, 2013: Covered entities must comply with most of the new Rules’ provisions.
- September 25, 2013: Disclosures of PHI become subject to the new restrictions on sale of PHI.
- September 22, 2014: Covered entities must bring all of their Business Associate Agreements (“BAAs”) into compliance with the Rules; the new Rules also apply this requirement to Business Associates’ agreements with their covered subcontractors.